What is an IPO?
An initial public offering, or IPO, is when a company lists on a stock exchange and turns from a private company into a public one. A typical IPO sees a private company sell new shares in the business to raise capital from public investors to fuel further growth, whilst also allowing existing shareholders to monetise part of their investment.
How did the UK IPO market perform in 2020?
The London IPO market remained surprisingly upbeat in 2020 considering Brexit uncertainty plagued the long-term outlook for the UK’s financial hub and the coronavirus pandemic rocked businesses around the world.
A number of big-names joined the London Stock Exchange last year. The Hut Group, which runs a fast-growing online platform selling its own and third-party beauty and health products, was the largest IPO in London since 2013 and it has already seen its shares jump more than one-third since listing. Kaspi, which controls the third largest bank in Kazakhstan, also attracted attention with its London debut, while smart-meter company Calisen listed in London at a £1.32 billion valuation in February only to be taken private for £1.43 billion in December.
London also welcomed global reinsurer Conduit Holdings, software reseller Bytes Technology, eyewear firm Inspecs and restructuring specialist FRP Advisory during 2020.
What is the outlook for the UK IPO market in 2021?
There was an acceleration in the number of listings in the second-half of the year. In fact, December was by far the busiest month for IPOs in 2020, implying 2021 could be an even better year for the IPO market.
Markets should be excited about one new theme that is emerging this year – London is attracting more big tech stocks. Traditionally, fast-growing tech companies going public have opted for the US and London has had only a handful of tech stocks to boast about. But the Hut Group’s blockbuster IPO has installed confidence that London can entice more tech firms.
It was reported in December that bosses of some of the biggest tech companies – including Deliveroo and Darktrace – met directly with prime minister Boris Johnson, who is thought to have tried to encourage them to go public and put on charm offensive to convince them to choose London over the US.
The rollercoaster ride for stock markets in 2020 may have held back the IPO market from reaching its full potential, but the introduction of vaccines and the anticipated economic recovery this year should reinstall any confidence that was lost by those companies that have delayed plans to list.
Notably, the launch of the London-Shanghai Stock Connect Scheme saw China Pacific Insurance and China Yanghtze Power each raise around £1.6 billion each from UK investors during 2020. The scheme is designed to increase trade and investment between the two countries and could lead to more Chinese companies using London to raise fresh capital.
Top UK IPOs in 2021
Below is a list of the largest companies that could potentially list in London in 2021.
EG Group runs over 6,000 petrol forecourts across Europe, the US and Australia under recognised brands including BP, Shell, Esso and Texaco. It was formed through the merger of European Forecourt Retail Group and Euro Garages in 2016 and it has continued to grow by acquiring more sites since then.
Bloomberg suggested the company could aim for a valuation of over £10 billion in a 2021 IPO.
It is not the best time to be in the petrol business as travel remains restricted during the pandemic, but EG Group has performed well. Revenue was down just 2.8% in the third quarter of 2020, and earnings jumped 90% to a new record quarterly high, ‘reflecting the resilience and differentiation of our best-in-class, diversified business model’.
The company has formed strong partnerships with major concession retailers like Starbucks and Burger King to make its sites more appealing and is well placed to perform well if the economy recovers in the latter half of 2021 as expected.
Notably, the owners of EG Group bought the UK’s fourth largest supermarket chain Asda from Walmart in October 2020 for £6.8 billion – although this is not being merged with EG Group. Walmart had considered spinning-off Asda under an IPO before it opted to sell.
Reports suggest EG Group is among many candidates this year that are considering listing in either the UK or the US.
Veterinary services outfit IVC Evidensia was created in 2017, when the owner of Evidensia and Independent Vetcare decided to merge the two businesses. Today, it is Europe’s largest veterinary care provider operating in 11 countries, having focused on buying small independent practices and improving them by consolidating their services.
Reports suggest IVC Evidensia could be targeting a valuation of around £10 billion in an IPO in 2021, based on annual revenues of over £1 billion. It is thought to have appointed bankers to set up a listing early this year, although it is reported to be open to selling itself to a competitor or to private equity, which is still hungry for deals in the current environment.
Transferwise is considering going public a decade after it was founded. The company has grown into a huge player in the international payments markets, specialising in cross-border transactions and foreign exchange. It has over 9 million customers and is thought to process £4.5 billion in cross-border payments every month, driven by claims that is ‘8x cheaper than leading UK high street banks’.
Transferwise is reported to favour London as its preferred destination but US bourses are also reported to have stepped up their efforts to entice the firm to list there instead. Any IPO is likely to be in the latter half of 2021 and the company is not under any pressure to proceed, suggesting it will wait for ample conditions before pulling the trigger.
Darktrace was founded in 2013 by mathematicians at the University of Cambridge and was the first company to develop a cyber security platform driven by artificial intelligence (AI). It claims its Darktrace Immune System is the ‘world’s leading autonomous cyber defense platform’ that protects networks in real-time.
The company is thought to have around $200 million in annual revenue but that looks set to explode considering it is reported to have over $1 billion in cumulative bookings, having swelled significantly as businesses scale up their online defences during the pandemic. That could be enough to see Darktrace earn a valuation of up to £3.8 billion, according to media reports.
However, there is some doubt over the IPO, at least in the short-term. The company’s biggest investor, Mike Lynch, is currently being trialled in the US over the sale of Autonomy to Hewlett Packard back in 2011, and there are reports that banks are worried about underwriting any IPO right now.
Delivery company Deliveroo has been pipped to launch an IPO for several years but is thought to be a likely candidate for 2021. The market growth for takeaway delivery drivers has accelerated during the pandemic, and more companies have started using Deliveroo to reach customers, such as convenience stores and off-licenses. The pandemic is thought to have pushed the company into profit during 2020. At the bottom line, Deliveroo has become a vital partner for businesses all around the country this year. It also secured a large investment from Amazon last year.
Sky News has suggested Deliveroo could go public in the first quarter of 2021, and various media reports estimate it could list at a value of anywhere between £2.5 billion to £4 billion, although the accelerated growth in the market during the pandemic could push it closer to the top end of that range.
Online card and gift retailer Moonpig will be well-known to many, and investors could get a chance to invest in the company if reports are true that it intends to list this year. The company offers a range of over 17,000 cards online and ships over 20 million each year.
Sky News reported Moonpig could be one of the first IPOs in London this year and earn a valuation of over £1 billion, as owner Exponent Private Equity looks to cash-in after buying the business four years ago.
It is another business that has benefited during the pandemic, swallowing up sales of older rivals that are not as digitally-savvy. CityAM reported the company’s pretax profit more than doubled year-on-year to £33 million in its last financial year.
Scottish brewer BrewDog, famous for making drinks such as Punk IPA, has taken a different approach to funding over recent years but is readying itself for an IPO in 2021. The company has been selling equity through a crowdfunding model since 2009 and is thought to have raised just under £80 million from 145,000 investors, many of which are customers.
Its latest funding round is set to close in January and the company has said it will be the last time it uses crowdfunding to raise cash. The company told the ‘i’ newspaper in September that it was preparing for an IPO – preferably in London, but with the final destination still being considered.
Notably, it has been a tough time for the hospitality industry over the last year and this has hurt BrewDog. However, the business will be well-positioned to benefit once restrictions are eased and, in the meantime, it has been able to offset softness in that market with its wholesale and ecommerce channels.
Online reviews platform Trustpilot is tipped to launch an IPO in the first half of 2021 as it looks to raise cash to accelerate its expansion. The company was founded in 2007 in Denmark and predominantly makes money from clients that pay to showcase the reviews collected on its website and to access tools to manage feedback from customers.
Sky News reports it could earn a valuation of up to £800 million, based on annual sales of over $100 million.
The need to verify online reviews has grown during the pandemic as shopping has shifted online, placing it in a good position to grow. However, the company will also have to allay fears about the reliability of its reviews and the regulatory risk facing the business, considering UK authorities launched an investigation into online reviews in May 2020.
Dr Martens is one of the most recognisable and oldest companies that could list in London this year. The company has been making iconic boots since 1947 and been under the ownership of private-equity group Permira since 2014, which is now considering how to crystallise the value attached to the company’s heritage.
Permira bought Dr Martens for EUR380 million but it is unclear what sort of valuation it could earn through an IPO. However, Permira is also thought to be considering selling the brand altogether. Permira has invested millions in the company’s Northamptonshire site and Dr Martens now sells online and through a network of 100 stores.
The economic outlook will prove crucial to whether Dr Martens goes ahead with a listing. Revenue was up 30% in the year to the end of March, 2020 during which it opened 25 of its stores, and a 70% rise in earnings. However, the business has been derailed when lockdown restrictions were introduced.
PensionBee, which allows people to consolidate their various pensions in one place, is one of the more certain IPO candidates for 2021 after its chief executive confirmed the intention to list. Romi Sanova said late last year that Brits had relied on online services more for financial advice and tools during the pandemic and that the company was hoping to capitalise on the growth.
PensionBee is hoping to list on the High Growth segment of the London Stock Exchange, which will also allow its customers to buy shares in the IPO. The Times suggested the business could earn a valuation of around £300 million.
The company was founded in 2014, has around £1.1 billion of assets under management and over 350,000 customers.
One lesser-known IPO candidate for 2021 is tinyBuild, an independent video games developer making titles available on all major gaming consoles and cloud-computing platforms. Its most successful title to date is horror game Hello Neighbour, which has been downloaded over 30 million times.
The company was founded in the US in 2011 and launched using funding raised through Kickstarter, but is reported to be preparing for an IPO this year and targeting a valuation of over £300 million. London is home to a number of small independent video games developers but it would be a rare occurrence for a US one to list in the UK.
Music Magpie was launched in 2007. It buys unwanted electronics from people and then recycles them or refurbishes them and sells them on for a profit. It has grown into a major recycler of electronics, everything from mobile phones to laptops.
Sky News reported Music Magpie was considering an IPO after business improved during lockdown as people cleared out unwanted items and sought new electronic devices whilst working from home, but it was not clear what valuation it could achieve.
Notably, Music Magpie has become one of the biggest third-party sellers on both eBay and Amazon, giving it an attractive edge for investors to consider. Amazon says it is one of its ‘most popular and trusted sellers’.
Beauty Bay says its is one of the leading online beauty platforms in Europe, sourcing scarce supplies of popular brands to sell to its customers. In the wake of the Hut Group’s success, the company is hoping to ride the wave of investor interest in the tech and beauty segment with a listing this year, but is thought to be open to a sale to a rival as well.
Sales will have benefited during lockdown as shopping shifts online, with reports suggesting revenue could have jumped by over 50% during the pandemic to sit at over £120 million a year, according to Sky News.